Bangchak Corporation Public Company Limited (BCP) Earnings Call Transcript & Summary

On behalf of Bangchak Corporation PCL, I would like to welcome all analysts, fund managers and representatives from financial institutions to the analyst meeting for the announcement of the operating performance in the first quarter of 2022. We have the honor of Kun Surachai Kositsareewong, Senior Executive Vice President, Accounting and Finance; and [indiscernible], Vice President, Supply and Optimization Planning to deliver the presentation today. Now please join me in welcoming Kun Surachai to begin the presentation.

As usual, this session is going to be an update of key highlights in the past quarter and the overall outlook of the operating results that have already been released. In the big picture, Bangchak's main business units, refinery, marketing, power plant and exploration and production, OKEA, have all improved as targeted with certain activities that have been initiated in the first quarter and will continue to be executed in the following quarters. Starting off with refinery, we have managed to exceed 100% utilization rate throughout the first quarter. This has been our aspired target for a long time. But in the past, we only managed to achieve the nameplate capacity only in certain periods. But given the improvements here and there, we can now go beyond the nameplate capacity throughout the entire quarter at the average of 122,000 barrels per day. If we were able to maintain this level of production, it is worth keeping an eye on the crude run going forward to see where this is leading to. Besides, with the potential improvement in product spreads in the remaining quarters of the year it is highly likely that the refinery business should pick up or be in an even better position than it was before the hit of COVID-19. Apart from trying to maintain the nameplate capacity, product yield is another thing we would like to address. In the past, where we only had low sulfur fuel oil as our main product, which nowadays sells at a more favorable price compared to regular-grade fuel oil, though demand for low sulfur fuel oil is still prevalent in the market. Now we have another feature product, which is UCO. We aim to expand market of these 2 highlighted products in the future. Meanwhile, the maintenance has been executed as planned, though the turnaround period will potentially take a shorter period of time, allowing for the cycle of the maintenance shutdown to be prolonged. Currently, our sales volume for several products have already exceeded production capacity, coupled with the resumption of jet oil demand, leading to a certain degree of supply shortage and consequently reliance on import. Meanwhile, we also have to optimize product yield and marketing strategies, including sorting out logistics synergies as well as arrangement of tax. In terms of logistics management, the acquisition of rights over the pipeline network capacity and terminal systems has earned us more convenience in pipeline network efficiencies and a more optimized storage cost. Besides, there is a plan to acquire another tax facility, which will allow for enhanced flexibility in terms of oil storage. In order to achieve crude optimization, our crude has been acquired through many sources, taking into account the amount of yield. In response to that, upon completion of the logistics and storage management, our yield and costs related to logistics and storage should have improved to accommodate our production. It is expected that upon switching from FSU to oil tanks in the second half of the year, the storage costs will considerably decrease. And that sums up the overall scenario of the refinery business with the focus on productivity enhancement and cost reduction programs such as 3E, the results have started to show, coinciding with the easing of COVID-19 and the economic recovery despite the Russia-Ukraine crisis, whereby many people have asked whether Bangchak uses crude from the Russia. We used to use Russian crude long time ago, but not at the moment. Upon our testing and simulation to determine whether Russian crude can optimize our product yield, given the existing catalysts or products we have developed, we have come to a conclusion that it does not quite match with our product yield despite its lower cost. With regard to other significant events, we have successfully proceeded with the IPO of BBGI, together with the COD of the Komagane solar project in Japan by BCPG. In line with BCPG's capacity expansion plan, for instance, the extension of transmission line from Laos PDR to Vietnam, capitalizing on the potential development of several production facilities in Laos PDR that can distribute to neighboring countries such as Vietnam, where demand for electricity is usually high. WINNONIE project, our commercial startup, which has business model of an electric motorcycle rental platform for motorcycle taxis has successfully raised Series A financing of THB 80 million. We believe that WINNONIE's business model resonates with the current situation, and we have been able to execute the project as planned. There was a redemption of BCP bonds amounting to THB 1,000 million, with only a minor increase in debt obligations in the first quarter and some restructuring of the debt profile. The accounting EBITDA in the first quarter was reported at almost THB 14,000 million with the consolidation of OKEA's performance, making quite a significant contribution of 31%, almost equal to refineries contribution of 36%. The operating results of other business units for us targeted though the percentage of contribution may have deferred due to the consolidation of OKEA's operating results. With accounting items such as inventory gain loss, the profit after tax was THB 4,356 million in the first quarter of 2022, which is considered quite high as we have now achieved about 70% of the figure in 2021 of about THB 6,000 million. Refinery is set to have the highest degree of volatility among all businesses of Bangchak. The marketing business is largely focused on the local market landscape, while BBGI's business is essentially dependent on the government's regulations and policy with regards to production formula and pricing. OKEA, on the other hand, has witnessed a tangible impact due to the abrupt increase in gas and liquid prices with the operating results being achieved as anticipated. The refinery business's EBITDA in the first quarter was THB 5, 021 million, increasing by over 100% year-on-year and by 60% quarter-on-quarter. Meanwhile, we achieved a historical record high crude run of 122,100 barrels per day in the first quarter of 2022, doubling from the first quarter of 2021 when there was a turnaround maintenance. If compared to the fourth quarter of 2021, the crude run in this quarter has increased by almost 10%. In terms of product yield, we have continued to focus on distillate products, such as diesel and UCO our key main products accounting for about 60% to 70% of the total production. The Russia-Ukraine crisis has led to an increase in oil price affecting both crude and product prices in general, resulting in tight supply and consequently, an increase in gross refinery margin compared to the first quarter of 2021. In the meantime, the price increase has also led to an inventory gain of approximately THB 3,500 million. Going forward, we aim to maintain the crude run at the maximum capacity of 120,000 barrels per day or more focusing on UCO and distillate to take advantage of the high product spreads. In terms of crack spread projection, the ULG95 Dubai spread in the second quarter through to the end of the year is likely to be between USD 19 to USD 22 per barrel. While gas oil Dubai spread should be between USD 23 to USD 34 per barrel and low sulfur fuel oil Dubai spread is likely to be between USD 11 to USD 15 per barrel. Stepping towards the net zero carbon economy. Bangchak aims to be the first sustainable aviation field, SAF producer in Thailand. In pursuit of this endeavor, Bangchak and BBGI signed an MOU with Thanachok Oil Light Company Ltd., Thailand's leader in integrated vegetable oil business for over 40 years for the procurement of raw materials, plant construction and marketing execution. The expected production capacity for our sustainable aviation fuel will be about 1 million liters per day. The trading business has been thriving so far being among one of the top independent traders in Singapore without the support of the parent company for internal use. It is worth keeping an eye on the trading business going forward as we have planned to trade other commodity products as well such as lithium with a certain amount of offtake from our previous investment endeavor. The EBITDA performance of the marketing business in the first quarter was quite high, though inventory gain accounted for about 40% of it. The improvement was due to a number of factors, with almost 10% increase in the marketing margins. Retail sales volume increased in the fourth quarter compared to the third quarter of 2021 before decreasing slightly in the first quarter of 2022, while industrial sales volume also improved mainly from a considerable recovery of jet oil sales volume. The number of service stations as of March 2022 was 1,292 sites, and the number of Inthanin outlets was 853 stores. Meanwhile, the market share may have been fluctuating slightly due to portfolio adjustment of a number of producers, for instance, distribution of premium products, product formula regulated by the government, pricing regulation and cost structure. Despite that being said, Bangchak's market share has exceeded 16% for several quarters straight, reaching 16.4% in the first quarter. We have implemented several additions to expand our network. For instance, the unique design service stations, new products at Inthanin, brand collaboration and the development of EV charging stations in collaboration with the Provincial Electricity Authority to expand the coverage to different areas, though we can now charge our vehicles at home or department stores, the charging stations installed by our server stations have been specifically designed with a quick charge feature. Our lubricant product has been well recognized among consumers, enabling us to grow the market share from about 8% to double digits despite limited marketing efforts. As already announced, BCPG has divested the geothermal asset in Indonesia. So the share of profits realized are going to decrease. Meanwhile, certain seasonality factors have had some impact on the BCPG's business, for instance, the wind power plant in the Philippines, hydropower plant in Laos and solar power plants in Thailand. BBGI's operating performance in the first quarter may have dropped slightly quarter-on-quarter due to high levels of raw material prices, causing spreads to soften, whereas in the fourth quarter of 2021, there was an extraordinary item causing the profit after tax in the first quarter of 2022 to our peers are slightly lower than the target. But all in all, the gross profit increased compared to the previous quarter. Gas price has remained stable at a rather high level, while liquid price has continued to increase. The liftings have been executed as planned and even better than the plan in certain sites. However, there was no lifting from Ivar Aasen field and the shutdown for Gjøa fields, which was part of planned maintenance rather than an unexpected incident causing a slight drop in product yield. In conclusion, BCPG's overall business outlook is as what has been discussed earlier. BBGI, on the other hand, mainly focuses on acquiring technologies or forming collaborations with partners in planned construction or processing facilities in order to enhance variety using their byproducts or other bio-based raw materials, featuring developments of certain products such as molasses into sweeteners or agricultural raw materials into plant-based meat as well as extracting local ingredients into food supplements or beauty and health products that help boost immunity. In the meantime, OKEA is in the process of expanding the business and identifying investment opportunities given the fact that its performance has considerably exceeded the target. The numbers on the statement of income may not appear strikingly different. The loss from derivatives was THB 1,320 million, which should be common among many refineries due to the rapid increase in the spreads. Bangchak's price hedging policy is about 30%, but the actual percentage is about 10%. However, the actual amount can still be reflected in the physical inventory. As mentioned, there was a divestment of a geothermal power plant from BCPG, resulting in the gain from sales of investment. The tax expense may have increased significantly due to the tax structure and tax reimbursement for OKEA. All in all, the earnings per share in the first quarter of 2022 was reported at THB 3.12 per share. The amount of assets has remained pretty much stable with the cash on hand standing at THB 46,686 million available for Bangchak, OKEA and BCPG from the divestment of OKEA thermal power plant. Other transactions are mostly the result of changing statuses of the assets. For instance, PP&E and inventory, which increased mainly from higher crude price. There was a decrease in liabilities, especially the interest-bearing debt, while the working capital increased in relation to the actual transactions and changing price scenarios, shareholders' equity increased from the improvement in their operating performance, consequently leading to higher return on equity. As has already been mentioned earlier, the group's cash flow in the first quarter has been positive. And that would be all for the presentation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]